The refining industry has stood out in the energy world as a huge winner, while most of the sector has been bombarded over the past nine months. Despite the solid run, the analysts at Cowen feel there is still plenty of room to go, and in a new research report are moving up the firm’s earnings estimates for the first quarter of 2015 across the coverage universe.
The Cowen team acknowledges that while crack spreads should start moving back to normal levels as industry maintenance winds down after April, margins are still strong, and many are expecting one of the largest travel seasons in history in term of miles driven this summer.
The six stocks rated Outperform at Cowen are: Delek U.S. Holdings Inc. (NYSE: DK), Marathon Petroleum Corp. (NYSE: MPC), PBF Energy Inc. (NYSE: PBF), Tesoro Corp. (NYSE: TSO), Valero Energy Corp. (NYSE: VLO) and Western Refining Inc. (NYSE: WNR).
This diversified downstream energy company has assets in petroleum refining, logistics and convenience store retailing. The refining segment consists of refineries operated in Tyler, Texas, and El Dorado, Ark., with a combined nameplate production capacity of 140,000 barrels per day.
Delek investors are paid a 1.6% dividend. The Cowen price target for the stock is $43. The Thomson/First Call consensus price target is $42.60. The stock closed Wednesday at $38.15 a share.
This is also a top refining name investors can buy now in hopes of substantial gains down the road. Marathon has a diversified business that operates through Refining & Marketing, Speedway and Pipeline Transportation segments. The company owns and operates seven refineries in the Gulf Coast and Midwest regions of the United States, which refine crude oil and other feedstocks. It also distributes refined products through barges, terminals and trucks, as well as purchases ethanol and refined products for resale.
Marathon shareholders are paid a 2% dividend. The Cowen price target is $120, while the consensus target is lower at $116.19. Marathon closed Wednesday at $89.29 a share.
PBF Energy engages in the refining and supply of petroleum products. It provides gasoline, ultra-low-sulfur diesel, heating oil, jet fuel, lubricants, petrochemicals and asphalt, as well as unbranded transportation fuels, heating oil, petrochemical feedstocks and other petroleum products. It has also stated in the past that the rising RIN costs will be passed along to the consumer, which makes for bad publicity but will increase earnings.
PBF shareholders are paid an outstanding 3.7% dividend. Cowen has a $35 price target and the consensus target is at $33.56. Shares closed Wednesday at $33.36.
This is another one of the Cowen top picks for the rest of this year in refining. Many Wall Street analysts cite the possibility for meaningful EBITDA growth driven by the Carson refinery, which the company acquired last year, and eventually through the company’s huge Port of Vancouver crude logistics project, which has been bogged amid controversy and opposition from local residents.
Tesoro, through its subsidiaries, operates six refineries in the western United States with a combined capacity of over 850,000 barrels per day and ownership in a logistics business, which includes a 36% interest in Tesoro Logistics and ownership of its general partner. Tesoro’s retail-marketing system includes over 2,200 retail stations under the ARCO, Shell, Exxon, Mobil, USA Gasoline and Tesoro brands.
Tesoro investors are paid a 1.85% dividend. The Cowen price objective is $90, while the consensus target is higher at $101.75. Tesoro closed Wednesday at $91.61.
Valero has 56% of companywide refining capacity located in the U.S. Gulf Coast, which makes Valero well-positioned to benefit from the ongoing infrastructure debottlenecking of inland crude oil supply in 2015 and beyond. Some Wall Street estimates have the company generating an astounding free cash flow compounded annual growth rate of 24% during the period from now to 2016.
Valero investors are paid a 2.7% dividend. The Cowen price target is $70, and the consensus estimate is at $70.77. Shares closed Wednesday at $63.78.
With refineries in El Paso, Texas, and Gallup, N.M., Western Refining also a fleet of crude oil and finished product truck transports and wholesale petroleum products operations in nine U.S states.
Investors are paid a respectable 2.5% dividend. The Cowen price target is $60, and the consensus figure is at $55.29. The stock closed Wednesday at $50.06. Hitting the Cowen target would be a monster 65% gain.
In an energy sector that has struggled, the refiners have shined, and the Cowen team has been spot-on in its assessment of these top stocks. Investors looking to buy may want to scale in capital and watch the current pullback to complete the purchase.